NEW YORK (CNN/Money) -
Treasury prices slipped in choppy trade Friday after the hourly wages component of the jobs report reinforced market expectations of rising inflation.

The dollar rallied against the yen and the euro.

The benchmark 10-year note fell 3/32 to 96-24/32 to yield 4.66 percent, up slightly from the previous session and not far below a new seven-month high of 4.69 percent hit earlier in the session. The 30-year bond slipped 6/32 to 107-15/32 to yield 4.85 percent, up from 4.84 late Thursday. Bond prices and yields move in opposite directions.

The Labor Department reported a smaller-than-expected 56,000 new jobs were created in October, but that the national unemployment rate eased to 5 percent from 5.1 in September.

The critical monthly jobs report was expected to show that non-farm payrolls rose 100,000 in October, bouncing back from a hurricane-induced loss of 35,000 in September.

"Overall, in the short term this is not going to deter the Fed from continuing its measured rate tightening campaign," Alex Beuzelin, a currency analyst at Ruesch International, told Reuters.

"But I do think it brings into question the notion of how aggressive the Fed is going to need to be in terms of raising rates in 2006."

For investors, the most attention-grabbing number in the report turned out to be the 0.5 percent increase in hourly wages. That was the strongest gain in wage growth since February 2003. Analysts said the Federal Reserve's policy-makers could see it as an inflation threat.

Before the report, markets had been driven by Fed Chairman's Alan Greenspan's concerns about inflation.

Inflation hurts bonds as it erodes the value of the fixed-income investment. However, rising interest rates generally help the dollar as they make dollar-denominated securities more attractive to foreign investors.

In currency trading, the dollar hit a new 26-month high against the yen, buying ¥118.28, up from ¥117.19 late Thursday. The greenback also hit a one-and-a-half-year high against the euro, which bought $1.1816, down from $1.1944 in the previous session.

-- from staff and wire reports

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